I was one of the NatWest Three

Gary Mulgrew was one of the three the millionaire British bankers who ended up in a US jail after losing a high-profile extradition case. He tells how one dodgy deal cost him everything – and why being a convicted fraudster is better than being a banker today

'People get much more bent out of shape about me being an ex-banker than they do about me being a convicted fraudster.' Photograph: Finn Taylor for the Guardian

Gary Mulgrew's mother had always taught him, when he was grappling with a particularly knotty dilemma, to scribble down his concerns, so he decided to approach being sent to a notoriously violent, gang-dominated jail in a Texas desert in the same way.

Sitting at a bare table in his rented Houston flat, Mulgrew laid out a sheet of white paper and some coloured pens. "PRISON" he wrote in the centre in capitals. Then, in red, "rape", then "buggery". "Shagged". "Buggery" again. Then "violence", "darkness", "murder", "extortion", "blackmail", "bitch", "knives", "death", "gangs", "gang rape".

Using different colours, he scribbled down other fears – notably the dark, a paralysing phobia since he was a very young child. Finally, on another sheet, he divided the scribbled words between two columns: "BAD" and "FUCKING CATASTROPHIC". At least the bad ones didn't look so bad.

It was a technique Mulgrew had used many times in his career as an investment banker, and to no little success. Starting out as an ordinary cashier in a Glasgow branch of NatWest, he had risen rapidly to become a senior vice-president for strategy, working from Tokyo and New York, before being put in charge of Greenwich NatWest, a small, London-based investment banking subsidiary of the high street bank. He had acquired, along the way, all the trappings of the boom-times banker: big house, big salary, big bonus, big ego.

But Mulgrew's management techniques – and his judgment – had failed him, and with one very bad deal his life had collapsed spectacularly; once charmed, now unquestionably catastrophic.

Mulgrew's name may not be immediately familiar, but there was a time, six or so years ago, when he acquired a sudden and very strange kind of celebrity. Some years earlier, in 2000, Mulgrew and two colleagues at GNW had made seven-figure personal windfalls by quietly investing their own money in a $20m offshore deal that, it turned out, was part of an elaborate fraud against the US energy giant Enron, brokered by the company's then chief financial officer, Andrew Fastow. The multibillion-dollar corporation, with which GNW had worked closely, would collapse the following year in one of the biggest corruption scandals in US history.

As Enron tumbled, the three men – Mulgrew, David Bermingham and Giles Darby – approached the Financial Services Authority in London, they say, to report their dealings with the firm and to draw the regulator's attention to what they now realised might be a questionable deal. No action was taken by the FSA.

But as US prosecutors gathered evidence against senior Enron executives, including Fastow, their attention turned to the dodgy-looking Cayman Islands deal he had cooked up involving the three British bankers. In 2002, the US sought the Britons' extradition on seven counts of fraud.

It was not the facts of the case that catapulted the three to attention, but the circumstances of their extradition, under the terms of a supposedly bilateral treaty that allowed the US to seize British suspects without presenting a substantial case against them, and that Congress itself had not ratified.

Newspapers wrote angry editorials; hundreds of businesspeople marched indignantly through Westminster. The Commons held an 11th-hour emergency debate during which the Lib Dem home affairs spokesman, Nick Clegg, condemned the "unfair, unequal treaty". The press, with the enthusiastic encouragement of a canny PR campaign, dubbed the men the NatWest Three, in the manner of an egregious miscarriage of justice.

It's almost laughable, Mulgrew notes drily, to imagine three millionaire bankers mustering that level of support today. "If it happened now, people would probably get a bus and drive us over [to America]." They lost the extradition battle in July 2006 and, after agreeing a plea bargain with US prosecutors in which they admitted one charge, were each sentenced to 37 months in prison.

The funny thing is, Mulgrew says, "People get much more bent out of shape about me being an ex-banker than they do about me being a convicted fraudster. 'You were a banker, oh my God!' Convicted fraudster was the first step of my rehabilitation."

Mulgrew is 50 now, greyer and a little thinner than before he was extradited, and living in Brighton, where we meet in a quiet pub of which he owns a share. (Of his partners, he says, "I've been amazingly lucky with how faithful, loyal and decent they were.") He speaks quickly, in a strong Glasgow accent, but surprisingly softly, and with a vulnerability that is at times quite unsettling.

He has now written a book, Gang Of One, about his time in Big Spring Federal Correctional Institution, one of a number of US prisons he passed through before seeing out the rest of his sentence, of which he served just over half, in Britain. It's an entertaining read, focusing on his menacing, sometimes comical dealings with his fellow inmates and the assorted gangs that competed over the prison's corridors.

There is an element, perhaps inevitably, of setting the record straight, as he sees it – throughout the book, Mulgrew refers to the offence that landed him in prison as no more than a breach of his employment contract. But while he says his legal fight has virtually wiped him out financially, the book was not written for money – most of any income will go to charity. He has a much more compelling reason for telling his story.

A week after Mulgrew was extradited, his ex-wife, Laura, rang to let him speak to their five-year-old daughter, Cara Katrina. The couple had separated two years earlier, in the fallout of the extradition drama, and while their son Calum, then eight, had opted to live with his father, Cara Katrina divided her time between both parents. Mulgrew's new partner had taken over Calum's care when he was extradited; he says Laura, at that time, was increasingly "vague" about her whereabouts.

When he tried to call Cara Katrina again, the mobile number went unanswered – and he has had minimal contact with her since. Laura fled the country with her shortly after Mulgrew's extradition, later marrying a Tunisian man called Abdul. Mulgrew doesn't know where they are now. Calum has had very occasional letters from his mother via his school, but there is never a return address.

"It's about my daughter," Mulgrew says of the book. "I think this is the mechanism that will probably help me find her. I'm hoping somebody will read this and will have maybe seen her. That's what I hope." He also wants to create a record for Cara Katrina while she's gone, to prove to her "that I was always trying, that she was always loved and it wasn't her fault.

"Your love for your children doesn't diminish," he says. "It just doesn't. And it's very, very difficult to, um… it's difficult to see… to function normally, right? Unless you feel… I have to feel every day that I've done just a little bit. It just helps me."

Whatever his history, Mulgrew does not now fit the archetype of the bumptious banker bestriding the financial markets with unshakable self-assurance. He talks, I suggest quite early in our meeting, with the sometimes lacerating self-awareness of someone who has spent time in therapy. "Er… A little bit. " It's more the case, he volunteers later, that he has always carried with him a powerful sense of self-doubt and a "terrible" need to be liked, even when he found himself at the very top of the money tree.

Mulgrew was born in 1962, the youngest of three sons, to a young Glasgow couple whose ill-starred marriage was over when he was a baby and his mother only 21. Unable to cope, she temporarily placed the boys in foster care and then, when Mulgrew was four, in an orphanage.

It was here, thanks to repeatedly being locked in a garage as a punishment, that Mulgrew acquired his crippling fear of the dark. (Happily, he was to find that in his 80-man "cell" – more like a warehouse – in the Texas prison, the lights were never switched off.) They returned after two years to live with their mother in a Glasgow tenement; he heard nothing from his father until he was 11.

His brother went back to the home once, he says, and found a report that had been written of their time there. "It was heartbreaking. It was terrible. I had once given somebody something, a cross or something, to 'be my best friend'. They said I… They describe me as a 'needy child'. I'm kind of pissed off about that, because why wouldn't you be, for fuck's sake. Of course I was needy.

"And when I read that, it was terrible, I thought, fuck, that's me, I've lived my whole life like that. That was… that was bad. Er…" He coughs. "That was when I was four, I think. And then, that's it. That's me, end of story."

He carried that eagerness to please through his childhood, he says, and through Strathclyde University, where he studied business. Before he graduated, he'd already secured a job interview at NatWest.

He found he was good at it, he says, and was fast-tracked by supportive bosses. "And I'm appalled to say I had read Kane And Abel and really liked that kind of banker thing. I was quite proud of it." His people-pleasing tendencies may even be part of what made him so successful, he thinks.

He now says he was not the only one desperate to make an impression. "You sit in meetings and everyone is talking about mathematical stuff and 'the probability of default is zero point such-and-such based on this and this' and you're sitting looking at everyone else and thinking, do you understand this?

"Now to say, 'Hold on a minute, I'm really sorry, I don't understand this. Can you explain this to me?' That is just incredibly difficult to do. People just sat there and everybody was too frightened to ask."

How much did he earn? He gets up and puts a log on the fire. "Do you really want to know that? Well, I got paid more in a year than I made in that deal [the one that landed him in prison]. I got paid a phenomenal amount of money. And I'll tell you something, I never asked for it. I was amazed when I got it, and what it meant for me was… Me! Me. Look at me. I've made it in this business, I can't bloody believe it." He's been described by former colleagues as arrogant, I say. "I think I had moments of extreme arrogance."

GNW's most important relationship was with Enron, whose team hosted the wildest and most lavish business trips, and had millions at their fingertips to invest through their bankers. The company, Mulgrew now says, "was the epitome of the capitalist model. When you went into their buildings in London or Houston, they had the share price everywhere, even in the elevators. And everybody, from the secretaries and janitors up to the big guy, got paid in shares… So almost all of them are sitting there with their own mental calculation, all the time, of how much wealthier they had got."

He admits he was "dazzled" by it, and particularly by Fastow. "He's the CFO of America's hotshot company, he's 36 years of age, an Ivy League guy. He has all those nice things in life: nice teeth, nice hair, shakes your hand properly. So when he offered me the investment, if he'd asked me to invest in a pizza parlour with him, I would have done it."

"The investment", needless to say, is the most tangled part of Mulgrew's story. "Are you going to ask me about innocence and guilt, all that?" he asks abruptly early in our interview. The three men had insisted on their innocence of the fraud while fighting extradition; their later plea bargain was taken by some as proof of their venality. So, is he guilty?

He answers with a question. "Do you like football? Well, Kenny Dalglish, first time he was a manager, was asked after a game that ended 1-1 and he got a dubious penalty, and the guy said to him, 'Was it a penalty?' and he said, 'Of course it was. The ref gave it, so it was a penalty.' In law, it's a fact that I'm guilty. I am guilty. Definitely, I have to be. I went to jail."

It was the turn of the millennium, and NatWest was fighting two hostile takeover bids that put in doubt the future of its hotshot investment banking division. Mulgrew, as GNW's leader, was talking secretly with a number of other banks about taking over his team wholesale. In the midst of this turmoil, he says, "Fastow said to me, 'If you do leave, do you want to do this deal?'"

The deal involved the three men recommending to NatWest that it sell a stake it owned in an offshore investment vehicle called Swap Sub for $1m, without informing their employers who was buying it – in fact, a company controlled by Giles Darby. The three had put up $250,000 of their own money for the purchase.

Fastow, meanwhile, had persuaded Enron to buy the stake for $20m. When the deal went through, he and a colleague pocketed $12.3m between them, while the three Britons shared $7.35m. (In 2002, Fastow was sentenced to six years in prison and ordered to repay $23.8m in stolen money, after turning informant against his former Enron colleagues.)

The US indictment on which the men were extradited stated that the men knew NatWest's Swap Sub stake was worth vastly more than they sold it for, and had conspired with Fastow to defraud Enron, at one point flying to Houston to present a seminar on how it should be conducted. "The concept of saying, 'Right, we're going to do a presentation on how do to a fraud,' it's fucking ridiculous," Mulgrew says. He also disputes vigorously that he undersold the Swap Sub stake. The US quickly dropped the conspiracy line of inquiry after Fastow insisted he had acted alone.

But the three accepted, as laid out in a "statement of facts" negotiated tortuously between prosecutors and the men's lawyers, that they were guilty of breaching NatWest's internal compliance rules that required they inform their employers of the deal – the basis of Mulgrew's assertion that he just breached his contract – and a "theft of opportunity" against NatWest, depriving the bank of the opportunity to make the money that they had pocketed. "My lawyer took me out for coffee the day we were doing the statement of facts, to explain why I was signing it. And he assures me that that is known as a theft of opportunity. Did I deliberately defraud NatWest? Absolutely not."

They took the plea bargain rather than fighting the case, he says, because every (London-based) witness they wanted to call to back up their story, now represented by NatWest's lawyers, refused to travel to testify, and losing held out a prospect of at least 20 years in prison.

Guilt, though, is a mischievous thing. In the book, Mulgrew describes facing his first shift cleaning the prison toilets and experiencing "an overpowering sense that I'd been found out, and placed where I really belonged. Maybe I deserved this prison after all. Maybe I deserved a lot worse. I'd climbed the ladder of success only to realise I'd perched my ladder against the wrong wall."

Does he mean he took a wrong moral turn? "There's a lot of that. Should we have seen Fastow for what he was becoming? Should we have known better? You look at some transactions… and you think, hmm, maybe we should have blown the whistle there and we didn't. I have a lot regrets about that. I have a lot of regrets about not… being strong enough as a person."

Two months after they had done the deal with Fastow, Mugrew says, he saw him in Miami. "Of course, I was fascinated about how he had made so much money [on the Swap Sub deal]. And, of course, I never asked him. I thought about asking him, but instead I decided to act like I did that every Tuesday, that I was cool. And when I look at that now I just… I think I was a horse's arse. Those are the kind of bits where I think I must have been polluted by it. All I did was thank him. 'Thanks very much, that was great. Maybe we'll do some more in the future.' I just stood there like a big diddy. And that's dreadful, I think."

The consolation to his critics, he notes wryly, is that he has "lost it all". He spent millions on legal fees, he says, and still has debts to settle. As well as the share in the bar and "some other ones", all he owns is a small building company in Lewes. His priorities, though, are rebuilding his relationship with Calum, now 16, and finding Cara Katrina, the imagined horrors of whose absence, for someone who was abandoned by his own father and still lives with the legacy of childhood terrors, is, he says, a "designer nightmare".

After Calum was born, he didn't speak to his own father for three years, he volunteers at one point (the pair had forged a relationship of sorts as he grew into adulthood), unable to deal with the enormity of what that abandonment meant. Eventually his father, who has since died, wrote Mulgrew a letter, having seen an article about him in the City press, that read: "Congratulations. Looks like you've finally beaten me."

"So I phoned him, went for a drink, and eventually I said to him, 'What did you mean by that letter?' He said, 'Well, you've always been driven by me. You've always wanted to beat me.'"

That's an extraordinary thing to say to the son you abandoned until he was 11, I say.

"I think so," Mulgrew says. "But that was him. I said, 'I didn't speak to you because I had a son, and I couldn't believe that you had fucked off and not been there. I can't understand that. I would never leave my kids.'" He stops suddenly. "That would be a good ending to a movie, wouldn't it? As I left them to go to prison. And everything that has gone wrong since."